Recovering from bankruptcy typically involves proving to new creditors and lenders that you can be trusted with a loan. This can be difficult because many won’t give you another chance after your credit score has dropped too low. Secured credit cards are a valuable tool for those who have filed for bankruptcy to show they can make on-time payments and eventually graduate to a regular unsecured card. Here’s a closer look.
How Secured Credit Can Help You Rebuild
What Is a Secured Credit Card?
In most ways, a secured credit card works just like an unsecured card. You can use it to buy items online and in stores. You’ll make payments on the principal every month, and anything left unpaid is charged interest.
The biggest difference is that to get a secured card, you must give the credit company a cash deposit. In most cases, your credit limit won’t exceed the amount of the deposit, which acts as collateral on the account and provides no risk to the card issuer.
You’ll get your deposit back when you close the account or when you’ve built your credit to the point where you can switch to an unsecured card.
How to Use It Effectively
The best way to build your credit with a secured card after bankruptcy is to make small charges and pay off the entire balance every month. It’s also essential that you make your payments on time to create a good payment history.
By showing that you can make your payments on time and resist the temptation to build debt you can’t afford, you can begin to show potential creditors that you’re a less risky prospect for larger loans. Most people find that it only takes about one year to build their credit enough to switch to an unsecured card when they use the account properly.
If you need help rebuilding your credit after bankruptcy, get legal and financial advice from the professionals at The Gil Law Firm in Dothan, AL. These bankruptcy attorneys have been helping residents of Alabama, Georgia, and Florida regain financial freedom since 2000. Attorney Rafael Gil III will use his passion and expertise to come up with a personally tailored solution for all of your legal issues. Schedule a consultation today by calling (334) 673-0100 or learn more about the practice online.